Blackstone Sees Fed Rate Cut as Catalyst for CRE Growth

Blackstone (BX) hit a record stock price Thursday after strong Q3 earnings.

Jordan B.
October 18, 2024

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Good morning. Blackstone shares hit a record high Thursday after posting stronger-than-expected Q3 results and better real estate investment performance.

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NEW RECORD

Blackstone Sees Fed Rate Cut as Catalyst for Growth, Eyes Higher Property Values

Blackstone (BX), the world’s largest commercial property owner, hit a record stock price Thursday after delivering stronger-than-expected Q3 results.

What happened: According to CoStar, Blackstone reported $54 billion in Q3 investments, its highest in two years. CEO Stephen Schwarzman attributed the surge in activity to the Fed’s September rate cut, which eased financial conditions and sparked renewed deal-making, particularly in commercial real estate. Schwarzman anticipates this shift will boost investor confidence and drive up property values.

Strong financials: This surge in investment activity aligns with Blackstone's dominant financial performance. The firm's Q3 net income soared to $1.56B, up from $920.7M a year ago, while distributable earnings reached $1.28B. Blackstone's AUM also hit a record $1.11T, with its credit and insurance segments—now the firm's largest—topping $355B and outpacing real estate and private equity.

Doubling down on AI: The firm is heavily investing in AI infrastructure, with a $16B deal to acquire AirTrunk, Asia-Pacific’s largest data center operator. The firm now has $70B in data centers and over $100B in pipeline development, making it the largest data center platform globally. CEO Schwarzman sees this expansion as a key play in the “digital and energy infrastructure” supporting AI growth.

Recovery on the horizon: BREIT reported a 93% drop in investor redemption requests, indicating stabilizing confidence. While sentiment remains “still negative,” President Jonathan Gray says Blackstone is positioning for a rebound, focusing on warehouses, data centers, and rental housing, which account for 90% of BREIT’s holdings.

Zoom in: BREIT's core-plus real estate investments, which focus on income-generating and stable properties, posted a modest 0.5% decline in Q3, a notable improvement from the previous 12 months' 3.8% drop. Meanwhile, its more opportunistic real estate investments gained 1.1%, reversing the declines seen over the past year.

Focus on rental, student housing: Blackstone continues to prioritize rental housing, particularly student housing, where demand remains high. Wesley LePatner, who will take over as CEO of BREIT in January, highlighted the “structural undersupply” of student housing in the US, positioning it as a resilient asset class. She noted that campuses with strong enrollments represent a "steady, all-weather investment."

➥ THE TAKEAWAY

Looking forward: With the Fed’s rate cut easing financial conditions, Blackstone is positioning itself to capitalize on a real estate recovery. Coupled with strategic bets on high-growth sectors like AI and data centers, the firm is laying the groundwork for sustained long-term value creation.

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✍️ Editor’s Picks

Pension perils: Dallas is facing a $19B pension liability challenge, and is desperately seeking solutions to ensure long-term financial stability amid rapid growth and ongoing legal disputes.
R&D tax windfall: Innovative businesses are slashing tax bills and fueling growth with often-overlooked credits, but complex rules demand expert navigation.
Steep discounts: The US CRE market is seeing slower investment thanks to still-too-high interest rates. Larger deals, in particular, are struggling, hinting at a potential market bottom.
Divergence drama: San Francisco Fed President Mary Daly warns against halting rate cuts despite inflation reaching an estimated 2.04% YoY.
Future home field: NFL owners approved a $1.4B futuristic Jacksonville Jaguars stadium to seat 63K, with the capacity to expand to 71.5K seats, securing the team for 30 years.

🏘️ MULTIFAMILY

Nothing to write home about: US rental prices fell for the 14th straight month in September, with median rents down 0.5% YoY to $1,743 across the top 50 metros.
Penthouse dreams: The GPI Companies acquired The Lofts at Noho Commons in Los Angeles, which features 292 post-renovation units, for $92.5M.
Multifamily musings: At the GlobeSt. Fall conference, multifamily leaders discussed end-of-year challenges and successful strategies amid market shifts.
Madison Ave makeover: Extell Development purchased a 24-story office tower on Madison Avenue for $160M, with plans for luxury housing and retail.
Risky renovation: Israeli businessman Hadar Goldman risks losing his portfolio due to a $25.5M loan default on Rhythm & Blues Towers, Oak Park in Chicago.

🏭 Industrial

Logistical boom: A Singerman joint venture secured $34M for Whitepine Logistics Center in Richmond, VA, featuring a 498 KSF industrial campus with multiple tenant units.
Office to industrial: Foundry Commercial is set to convert a 250 KSF office to 300 KSF of industrial space in Plano, TX, with 32-foot clear heights.
Building success: A joint venture between Lincoln Property Co. and Goldman Sachs (GS) secured $83.8M in financing for an 894 KSF industrial development in Kyle, TX.

🏬 RETAIL

Spending season: Retailers are optimistic for a strong upcoming holiday sales season, with a projected 2.5–3.5% increase in spending, driven mostly by e-commerce.
Residential rethink: Scott Gidwitz shifted plans from 500 apartments to retail, developing a 6.2-acre tract for Cava, First Watch, and Chase in Skokie.

🏢 OFFICE

Power move: Bloomberg LP expanded its Midtown Manhattan office presence with a 925 KSF lease at 919 Third Avenue, highlighting growing office market demand.
Tower troubles: SL Green (SLG) and RXR Realty, co-owners of Manhattan's 825 Eighth Ave, defaulted on a $940M loan after a major tenant recently left.
Coworking boom: Dallas-Fort Worth currently has 279 coworking spaces, ranking second in the country with 5.3MSF—not to mention average rates have dropped to just $150 per month.

🏨 HOSPITALITY

Check-in, please: US hotel investment sales grew 11% in Q3, reaching $4.4B, driven by robust transactions, despite rising operating costs and economic uncertainties.

📈 CHART OF THE DAY

According to the National Association of Realtors, sales of existing single-family homes, townhouses, condos, and co-ops have plunged dramatically, dropping about 26% from pre-pandemic years (2018–2019) and a staggering 34% from the housing boom of 2021.